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UHS Expects Staffing Costs to Drop, Paving the Way for Growth in 2023



Universal Health Services (NYSE: UHS) leadership projects workforce pressures may ease up this year, allowing it to return to growth mode.

Executives at the King of Prussia-based hospital system estimate that lower COVID rates will result in lower premium pay for temporary employees. Across the business, executives expect those costs to shrink by a third in 2023.

The pandemic inflated workforce costs during the pandemic. And the shortage of providers was so dire that even hiring temporary staff wasn’t enough to keep all behavioral health beds in operation. This has cooled UHS’ interest in its expansion efforts. The company has seen significant hits to its profitability as it faced premium rates for temporary labor in its behavioral health and acute care divisions. 

In fact, net income for UHS was down 32% year-over-year to $676 million for 2022, according to the company’s new annual financial disclosure.

“Obviously, we’ve been more tempered, if you will, about behavioral capacity addition during the pandemic because the thought was what’s the point of adding additional capacity if we’re not going to be able to staff it,” UHS CFO Steve Filton said during a Tuesday earnings call. “We are certainly looking and trying to gauge in the individual markets where additional capacity may be called for because the demand is there and because we feel like we can adequately staff any additional capacity that we build.”

UHS executives have spoken frequently about the difficulties the company has had hiring, retaining and staffing facilities. The most challenging position for the company to hire and retain is a registered nurse, Filton said. 

The company has become more reliant on licensed practical nurses, licensed vocational nurses and behavioral health techs. It has also deemphasized the use of registered nurses.

Late in 2022, data revealed that the wages for psychiatric and substance-use hospital workers were trending down from industry highs.

UHS has also looked to technology to help alleviate some staffing issues. While some have been promising, none have truly been a solution to the staffing issue, UHS CEO Marc Miller said.

“I do think in the coming years there will be some that we go forward with,” Miller said on the call. “I’m not sure that any of them are going to be a real panacea. I do think that they can be helpful, depending on costs, to alleviate some of the staffing issues that we’ve had over the past few years.”

Miller didn’t name specific tech solutions.

Miller and Filton’s tone was more optimistic than the company’s third-quarter earnings call. Then, Filton said that negative impacts on behavioral health bed openings, and therefore revenue, would have a material impact on the business for the foreseeable future.

Miller also said during the call that early signals in 2023 have been very promising and that the pace of recovery from the pandemic will likely continue to be gradual.

The gradual recovery expectation comes after UHS had to diminish its initial financial performance estimates for 2022 in April. The new projection ranges for 2022 earnings per share (EPS) were $9.60 to $10.40 and $13.24 billion to $13.37 billion for revenue.

UHS slightly beat its revenue estimates by bringing in about $13.4 billion in revenue in 2022 and missed its EPS projection, bringing in $9.23 per share.

The company’s revenue continues to grow despite the COVID- and staffing-related challenges. UHS increased revenue year-over-year by about 6% in 2022 and has seen revenue increase by about 29% over the past five years.

“We remain confident in the fundamental strength of both our business segments given our well-positioned hospital franchises around the country,” Miller said.

Previously, Filton said during a Credit Suisse conference appearance that UHS’ tough talk with payers had paid off, resulting in higher rate increases than historical norms, further supporting the company’s revenue growth.

UHS operates 359 inpatient facilities and 39 outpatient and other facilities in 39 states, Washington, D.C., the United Kingdom and Puerto Rico. Of that amount, 331 inpatient and 10 outpatient facilities are behavioral health. 

The behavioral health division continues to see slight decreases in the share of the company’s revenue. Over the last five years, the behavioral health division has seen its share of UHS’ total revenue dip from 47% to $43%. In 2022, the division secured $5.73 billion.

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